Interview With Dominion Diamond CEO Bob Gannicott

June 20, 2013byRob Bates

Dominion Diamond Corp. has been in the news quite a bit lately with its sale of Harry Winston and purchase of the Ekati mine. CEO Bob Gannicott talked to JCK about where he sees the more prominent rough producer fitting into the larger diamond industry.

How do you plan to sell the Ekati production?

It used to be sold by BHP under an auction system. We won’t be using that. We will move those goods under the system that we have used for Diavik goods over the years.

You use a sightholder system.

That’s De Beers terminology. We sell to regular clients and we price against our view of the market.

De Beers and Alrosa sell some of their production via tenders. Do you plan do that as well?

We do that occasionally, very occasionally, to check pricing, as sort of a reference to our market prices. But we don’t do it that often. It disrupts our clients’ business, because then they don’t get their supply every month. We believe you always get the best price over the long haul by dealing with someone that you have a relationship with.

Do you plan to increase your list of customers?

Not greatly. Most of the people have always wanted us to supply more anyway. We will take on more customers. There were some customers for the Ekati goods and we won’t want to ignore them. There were some people who liked the [BHP] auction system and maybe they won’t want to come over to us. But some people who prefer the regular sales system will come.

Now that you have sold Harry Winston, do you plan any downstream initiatives?

We will manufacture special goods. We will be mining the Misery pit, and it has the reputation for some nice fancy yellows. So we may have regular sales of those goods maybe once a year.

But do you plan any marketing initiatives?

No. Other than, along with the purchase of Ekati, came Canadamark, the country of origin certification. And we may continue to use that and may try to raise the profile of that more.

Do you plan to buy any of Rio’s properties, particularly the remaining 60 percent of the Divaik mine?

I am not sure what Rio Tinto’s plans are. Things have changed in the upper management there. Obviously, Argyle is a problem for them. We don’t wish to acquire ownership of Argyle. The diamonds there are special, not the regular ABC’s of diamonds. It is cheap, small product and we feel that’s the place that will face competition from synthetic diamonds. It’s in Australia and we don’t know our way around Australia.

If the mines are sold as a unit, do you still have the right of first refusal on the rest of Diavik?

Yes, absolutely we have the right of first refusal. That doesn’t go away.

Are there any synergies in owning and operating Ekati and Diavik, so close to each other?

Not really. Not anymore. There could have been, but you only have six years life in each of these. Diavik will be finished by 2019. The current ore in Ekati will run out in 2019, but we feel we can extend it. Buying Diavik doesn’t give us more mine life. We would certainly be happy to buy the 60 percent at Diavik at the right price but there is no point of reaching to buy it.

Are you interested in other acquisitions?

If they are in Canada, or in some place we feel we have a special operating edge. We wouldn’t want to get bigger just for the sake of getting bigger. We just want to remain profitable. There is not point in buying marginal resources just to get diamonds.

Do you think the future of the diamond industry will involve more “pure-play” diamond companies?

My view is that diamonds are a special commodity. The only thing they have in common with iron and ore is digging the hole. The way that they are processed is entirely different from all commodities. I am not the least bit surprised that Rio and BHP decided to sell their diamond units. These things are completely unrelated to the other things that they do and these things are a distraction. Diamond mining is a place for specialists.

In a business sense, vertical integration works very well. Our ownership of Harry Winston was very profitable for us. But in the stock market, there is either a mining analyst or luxury goods analyst. As a private company, I wouldn’t hesitate to combine the businesses. But it’s harder as a public company.

Harry Winston had a plan to finance its diamond purchases via an investment fund. Did that work?

No, but to be fair, when the employee started it, he ran into the 2008–2009 thing and then commodity prices went down. I don’t think it’s impossible, but the complexity of diamonds as a product make that more difficult to do than for something like gold.

Dominion doesn’t seem to get involved in industry politics as much as the other producers. Will that change?

With the greatest respect, this business has more than its fair share of what they call “talking shops.” You can attend a diamond conference every day of the year. We are better off spending our time managing our business.

Will you take more of a leadership role in the industry?

I don’t think we will seek a leadership role. Obviously we have been a big producer of rough. I think after Alrosa and De Beers, we are the next ones after that. We are not going to seek a prominent leadership role, but we are not going to shrink away from things like supporting country of origin. If that is what you call a leadership role, we will do it.

Speaking of country of origin, what is your opinion of tracking systems like the RJC chain of custody?

I think [tracking] will become more prominent. The world in general has become more determined to track any kind of financial transaction. Diamonds can be a proxy for financial transactions, so we can expect there to be more rigor in that. That is one of the benefits of who we are. We are not mining in any strange countries. We are mining in Canada. We actually sort our diamonds for market here in Canada. They are delivered directly to the customer and don’t get resorted.

How do you currently see the diamond market?

It looks very tidy at the moment. The JCK show in Vegas left everybody feeling much more optimistic in the U.S. market. The emerging markets of China and India both have their current issues, but diamond sales at retail will continue to grow. There is a shortage of diamonds looming. I don’t think it will be sudden. I don’t think we will see the sudden price spikes that can disturb the market. We are all better off getting to measured growth in prices.